OKLAHOMA CITY – As America counts down to the presidential election on November 3, a lot of people are curious about both politics and investing and how the two coincide and influence one another.
“People confuse the market and the economy,” said Kelly Dandurand, a financial advisor with Edward Jones in Wichita, Kan. “They are different things, though they do have a lot to do with each other.”
She said a lot depends on how much one saves, how much one spends and how much one invests.
“I have some clients who ask, ‘What do I do with my money if Trump is re-elected?’ Others ask, ‘What do I do with my money if Biden is elected?’ There is a lot of speculation out there.”
Continued Dandurand: “The president won’t determine if you go broke or if you make $1 million. (Just) don’t make decisions based on emotions. When you do that, things don’t usually end well. Use logic instead.”
Dandurand understands that a lot of folks out there are nervous about the market landscape, in the midst of a rocky political scene which is being impacted by the COVID-19 pandemic.
Dandurand has shared an online Edward Jones document on her social-media platforms, noting a few reminders consumers should consider going forward into the 2020 election and beyond.
“Consumer spending drives two-thirds of economic growth. When consumers feel confident, they are willing to spend more and that spending boosts demand and economic growth.
That said, “consumers tend to have more confidence about the economy when their preferred party is in office.”
For instance, Democrats were more excited about the economy when President Barack Obama was in office, while Republicans are more animated about the economy now that President Donald Trump is in office. During the Obama years, the stock market grew nearly 15%, while under Trump, 12%.
Interestingly, Dandurand’s document – written by Nela Richardson, Ph.D. - notes that independent voters “tend to exhibit confidence at levels between the two political parties.”
Additionally, while gridlock often occurs in the midst of a divided government, as we currently have, the COVID-19 pandemic led to “broad-based bipartisan efforts to provide a much needed (economic) lifeline to businesses and consumers.” This should be positively noted by consumers and investors when making financial decisions going forward.
Readers should again note that “the combined monetary and fiscal response to the pandemic was more aggressive and occurred sooner than in any other recessions. The Federal Reserve pledged $2.3 trillion to help the economy get back on its feet, a larger sum than even during the Great Recession. Fiscal stimulus totaled over $2 trillion and is expected to grow, making it the largest rescue package, as a percentage of GDP, to date – second only to Roosevelt’s 1930s New Deal.”
Regardless of whether Biden or Trump wins on November 3rd, federal stimulus will be a “key component of the economy for some time in the future.” The upside is that Edward Jones expects that the federal stimulus could lead to a quicker-than-average start to the recovery, likely in the second half of 2021.
The financial report continues, saying that with continued economic and market uncertainty that market volatility will continue to be elevated in the lead-up to the election and even afterward.
Notes the Richardson-penned article, shared by Dandurand: “Looking back, stocks initially dipped 5.3% and 2.4% after Obama’s 2008 and 2012 victories, respectively. Stocks declined 4% in the early hours after Trump’s victory as well. These post-election dips proved short-lived, with stocks quickly reversing course, fitting with historical precedent.”
Since 1947, the S&P 500 has climbed 6% on average in the 12 months following a presidential election, about the same percentage as the 12 months preceding an election.
Market reactions to leadership changes are hard to predict. While this election poses unique challenges, we don’t think politics is a long-term driver of markets. Stock markets have averaged 10% over the past 30 years, regardless of which party controlled the White House and Congress, and under a divided government.
Moreover, policy plans and proposals introduced on the campaign trail tend to change a great deal as they move through the democratic process. What history shows is that the effect of election outcomes on markets is generally temporary and economic and corporate fundamentals are what drive stocks over time.
Concludes the Edward Jones document: “Because of this, our advice during the 2020 election season is the same as any other season: Don’t play politics with your portfolio.”